Low Wage Rates Lecture Chapter 5 Lecture. Spring 2009

Transcription

1 Low Wage Rates Lecture Chapter 5 Lecture. Spring Multiplier Effect Exercise. a) GNP: Gross National Product. Speed at which dollars change hands b) Pass dollar (Play money) Speed changes Speed = economic growth Pass around class: Front to Back. 15 seconds Left hand Right hand Earn money Purchase goods, and services c) Multiplier Effect 4 bills reconfigure for economic growth d) Trade Deficit. By 1992 Americans were buying $2 worth of imports for every $3 worth of goods made here. At the end of World War II, the ratio was less than $1 of imports for every $10 of American-made goods. 17 Translating such data into more immediate terms, this has meant great losses in jobs. Plant closings went up in the United States as foreign competition for America's purchasing dollar rose. Decline ensued in one industry after another. While imported steel was only 2 percent of the American market in the 1950s, it is 20 percent today. In 1960, America made three-fourths of all the world's cars. Today we account for only one-fourth of global automobile production. During the mid-1980s, the high-tech semiconductor industry lost $2 billion while twenty-five thousand employees were laid off in the computer industry as competition with foreign firms sharpened. 18 Denny Braun, Sociologist from Mankato State University, 1

2 The Rich Get Richer: The Rise of Income Inequality in the United States and the World (Chicago, Illinois: Nelson-Hall Publishers, 1997), Bennett Harrison and Barry Bluestone, The Great U-Turn: Corporate Restructuring and the Polarizing of America (New York: Basic Books, 1988), John Agnew, The United States and the World Economy: A Regional Geography (New York: Cambridge University Press, 1987), Export Sales abroad 1945 $10 American goods 1992 $2 American Goods Import. Purchase foreign goods $1 Healthy Trade Surplus $3 foreign purchases. Disastrous Trade Deficit 2. Technological stagnation Floppy disk vs. Flash Drive IPod,

3 3. Accounting Problem. Accounting. Meaning Common business sense. Debit. Credit. That which is owing. An entry on the left-handed side of an account ledger. To give credit in a bank account. To enter on the credit side of the amount paid. Debt Asset a) When a CEO, corporate raider of liquidating merger and/or acquisition specialist: exports jobs, lays off workers, sells corporate assets, and/or out-sources work, they show a short term paper profit. Let us say that they sold the human capital side of Hewlett Packard for $2 million (aka Agilant Technologies). b) They show a short-term profit of $2 million on the corporate books. What they have done, as a practical matter is sold off valuable corporate assets. Labor and human capital is what produces the products, services and innovations, which HP will sell next year. Instead of making the company money; they have killed the geese that will lay next year's golden eggs. c) Unfortunately, our antiquated accounting practices have not kept up with CEO greed. What should happen in the real world is to enter a balancing entry on the debit side of the ledger, which accounts for the sale of corporate assets. Given my proposed accounting reform, HP would show a $2 million short term credit, and an accompanying $18 million dollar loss, for a net operating loss of $16 million dollars. This assumes that over the next ten years, Agilant would have earned let us say $8 million per year, amortized at present value. The bottom line is that this greedy CEO created a paper profit of $2 million in the short term, by liquidating, jeopardizing and selling off corporate assets, which were worth much more in the long term. 3

4 4. Special Interest Conflict. a. National interest vs. CEO interest b. Mercantilism. Mercantilism used taxes and customs duties to protect domestic industry. This has happened. As Ross Perot said, That "giant sucking noise," caused by NAFTA, is the sound of millions of jobs being exported to Canada and Mexico. This empirically has not happened. How many millions of jobs must the US export per year before we realize that globalization is harming the American economy. Those millions of jobs, dollars and capital that we export per year, ain't never coming back! c. Tariffs / Customs Duties. They taxes foreign imports, thus raising their prices. This leveled the playing field for domestic manufacturers. Globalization. Economists, politicians and businessmen, who believe in globalization believe two things. First, jobs and exports will migrate to those countries, which can produce goods and services most efficiently. Second, somehow this increased economic efficiency will rebound and benefit American workers and businesses. Free Trade. Eliminate trade barriers to boost trade. By contrast, an immediate 25-50% tax on all imported goods and services would level the playing field, make Chinese good much more expensive, and stop the export of jobs cold. In addition, import duties and customs taxes, which are by comparison easy to collect, can be used to invest in infrastructure, green industries and domestic jobs. 4

5 d. Protect American Workers. Export Jobs e. Domestic Multiplier. Chinese Multiplier. f. United States China / India. a. Did Europe and Japan jump on the Globalization Band wagon? Did they export Dollars, and ship their jobs overseas in order to take advantage of low wage rates? 1. National Economy. a. Northern States Southern States b. Long Term Prosperity Long Term Stagnation. c. Bottom Up Top Down Trickle Down. 5

6 d. Long Term Growth Benefits workers Short term gain Usually top heavy e. High Wage Rates Low Wage Rates f. Worker spending creates jobs Rich spending feather's nest g. Builds Customer Base. Your employees are able to buy your product. You build your own market. h. Consumer goods Creature comforts Exports Jobs. You harm your own market. Americans are the number one consumers in the world. Unemployed and laid-off workers buy few products, goods and services. Durable goods These goods are built to last Capital Investments made by craftsmen One unit of labor input i. Consumer Goods: Food Clothing Heat j. Labor intensive Consumables Continual labor inputs Expendable Use up Need more of Luxury Goods: Houses Cars Sailboats Art, Scarcity Pay premium based on brand name. k. Domestic Labor Foreign Labor 6

7 Slaves House Negroes - 2/3rds Big House Wedgeworth China Fancy English Riding Saddles Matched teams of horses Harpsichord Expensive portraits Rolls Royce Ming Vases (China) Van Gough Painting (French) BMW. Bavarian Motor Works 7